Bitcoin mining has turned into a huge industry. Although it is difficult to find the exact number of people carrying out this task currently, it is reported that around 900 new coins are mined each day, while many other cryptocurrencies also offer mining opportunities. Could recent changes make it easier to mine and, if so, what could this mean for the cryptocurrency market?
The Mining Process
A powerful computer is needed to solve complex algorithms in order to carry out the mining process. A single person on one computer could take up to five years to mine a coin, which is why most miners join a pool that lets them share in the overall success achieved. Bitcoin isn’t the only coin that can be mined, as the likes of Ethereum and Litecoin are among other popular cryptocurrencies that offer the possibility of gaining profits in this way.
In general terms, it becomes more difficult to mine over time. Yet, if the price increases then the extra processing power and time needed to create a coin is considered to be worth it. Just consider the price of a Bitcoin now compared to a few years ago to see that the extra time needed to earn one is justified.
Only 21 million Bitcoins can ever exist and while the first 18 million were mined in about a decade, it has been calculated that the 3 million left could take over a century to mine, due to factors such as the regular Bitcoin halving. Altcoins such as Zcoin and Monero are easier for people to mine using a regular computer at home, but the fact remains that mining, in general, gets more difficult over time as more people join in.
What Has Changed?
The Bitcoin mining difficulty figure changes every couple of weeks, giving an up-to-date rating for how much power is needed to mine new coins. Recently, the second-biggest decline in the currency’s history has been recorded. The record drop in difficulty occurred in 2012 when the introduction of a new generation of computers allowed a sizeable reduction in the time needed to obtain a coin.
The current drop of more than 16% that was noted at the start of November 2020 is said to be due to many computers in the Sichuan region of China going offline in time for relocating to areas that offer cheaper energy at this time of year. China is still the main area for mining activity, so any change there is generally reflected in the industry.
Therefore, it is just a temporary effect that is almost certain to be corrected in the next difficulty rating update on November 15. Yet, this period should allow workers who carry on mining to become more profitable. It is relatively rare to see the difficulty drop like this and even more so at a time when the price of the currency is rising.
The Possible Effects on the Market and Prices
If mining were to become easier for a sustained period then it could lead to a flood of new coins entering the market, which could lower the price overall. Of course, Bitcoin and other cryptocurrencies are already known for their highly volatile price swings.
However, as we have seen, the latest change to the mining industry is purely temporary and is likely to be corrected shortly. On a more long-term basis, it is clear that there is a connection between how easy it is to mine and the current market price.
These coins are set up so that the mining difficulty is in line with the price, but there are going to be other situations in which these factors fall out of step with one another for some reason. It is during these periods that mining will become more or less profitable, and when the price may change in the short-term to reflect this.
It is also possible to try and profit on these currencies by buying and selling them, with the added possibility of trading them in pairs. Some forex brokers allow users to trade crypto coins against other crypto coins, fiat currencies or commodities. Other options from brokers include crypto CFDs and physical crypto trades.
The Future of Cryptocurrency Mining
The truth is that mining has become more difficult over time, as the industry is now more competitive due to more people giving this process a try. However, as the difficulty level increases, prices have risen and made up for the extra time spent on mining, so it remains profitable for serious miners.
Yet, if prices drop then this could lead to lower difficulty levels and could mean that people keep on making money through mining. This balance means that there are no signs that making a profit from mining will get substantially easier or more difficult in the long term. For a long-term change, we would need to see a major factor emerging, such as more affordable mining rigs or a change to the process that allows more people to join in.
Featured Image Source: Needpix